It should have been self-evident that it made sense to bar crypto companies from evading AML and tax law or from helping their customers do so.  Still, the infrastructure bill almost toppled as claims flew that the proposal would doom the U.S. to an increasingly dysfunctional analog future.  We shall see what comes of this provision now that the infrastructure bill heads to the House, but it epitomizes the challenges that lie ahead for legislation from Sen. Warren and other Democrats seeking to govern crypto-finance.  Ambitious crypto legislation will stall in this contentious Congress absent a crisis that focuses its fleeting attention.  Thus, the keys to crypto’s kingdom lie in the regulators’ hands.  These will be busy.

First to what bank regulators will do.  As I told the American Banker, the OCC may well resume crypto charters but new crypto charters will be very, very different than those approved by Acting Comptroller Brooks.

For one thing, any stablecoin in any national-bank charter or, for that matter, even any stablecoin facilitated by  a national bank will now need to be fully reserved and that means fully, not sort-of as is clearly the case with Tether, Coinbase, and many others that simply backed their promises of stability with whatever best suits their short-term profitability.

The OCC will do so now secure in the knowledge that the FSOC stablecoin review recently ordered by Secretary Yellen will demand 100%, sterile reserving across the spectrum of stablecoin products and the SEC and CFTC will surely enact similar standards once they get through the complex task of defining when a crypto asset or provider comes under securities or commodities law.

This is a bit easier for bank regulators.  Anything that is housed in or even affiliated with a bank is their unchallenged domain.  But, that doesn’t mean they haven’t a lot still to do beyond handling a raft of charter or activity applications.

When the OCC, FRB, and FDIC deal with a raft of safety-and-soundness questions is less certain.  They may wait for Basel to finalize its tough new capital and liquidity rules, but then again they may not think they have time to wait.  One way or the other, the U.S. will either implement Basel’s final standards or “goldplate” them, but tough new rules are in store for any entity dealing in crypto assets for its own or another’s account.

SEC Chairman Gensler’s plans for crypto securities also establish a firm principle:  with or without new law, anything crypto that looks like a security or acts like a security will be a security subject to the SEC’s hefty enforcement regime until the courts say anything to the contrary.  The CFTC has so far lagged its counterparts in crypto standards, but it last week roped in a company allegedly acting as an unlicensed futures commission merchant even as FinCEN slapped it with a crushing AML-related fine.  More of these AML actions are also to come across the range of crypto firms.

But FinCEN isn’t the only agency with the authority to set standards across an array of charters; there’s also the CFPB.  It can and we think will lay out a new crypto regime demanding far better disclosures from any crypto company providing any form of finance to anyone who isn’t clearly another company. Given all it’s got to do on other top-priority questions and the absence of a confirmed director, we expect the Bureau to lag the other agencies and take its lead from them.  However, once it gets going, it’s hard to tell where an agency with so much authority over so many aspects of otherwise-unregulated consumer finance will stop.

Will all these rules staunch the innovation elixir?  It will certainly turn off the geyser flow of new ideas, products, and firms with little more than their eyes on the unicorns prancing across this sector.  Is this a bad thing? I think not.  We have an FDA for a reason – even though it’s rather more urgent to rush medicine to patients than to ensure that the next dogecoin comes quickly to market, medicines have a nasty habit of proving poisonous without careful, scrupulous, and objective vetting.  The same and then some is true for finance that knows no bounds.